Small businesses have a boatload of financial data to manage to stay competitive. If you are just starting out, you might be able to get away with doing the bare minimum. But as your business grows, you will find yourself compiling reports, tracking expenses, monitoring taxes, balancing budgets, documenting your income, and more — all of which are likely to give you a headache. If you are paying accountants and bookkeepers to help you out, you are looking at significantly more billable hours.
In either case, if you aren’t following the best accounting practices, you stand to lose precious time and money.
To reduce the risk of inaccurate financial reporting and cut down on unnecessary costs, here are 5 proven accounting tips you should consider following on a day-to-day basis.
1. Maintain a monthly record of financial data
Keeping a diligent record of your finances allows you to better manage cash flow for every month. You are able to anticipate expenses ahead and prepare for them accordingly.
Hold them off for any longer, and you might be looking at financial trouble down the line
Have you exhausted your lines of credit? Should you set aside cash for imminent financial expenses? For instance, if June to September are your heavy-duty months, you can plan your business finances in advance to ensure operational efficiency.
Tracking monthly your finances also helps you identify discrepancies, if any, and attend to them instantly before they turn into irksome, time-consuming tasks.
2. Automate with an Accounting Software
Given the cutting-edge accounting software available in the UK today, accountants and bookkeepers are now able to manage business finances more efficiently than ever. Automated bookkeeping practices eliminate costly human errors in calculation, and give way for improved accounting accuracy. Businesses can also automate invoicing, report generation, and other manual bookkeeping tasks and direct the efforts of their accounting departments towards more valuable exercises.
Accountants and bookkeepers are also able to advise businesses — small, medium, or large-size — towards increased productivity and profitability by leveraging powerful, actionable financial insights generated in real-time.
One such example is the Dext software for accountants which helps businesses add value by saving them significant time and money that would otherwise be directed towards retrieving data manually from receipts, invoices, and bank statements.
3. Separate your personal and business expenses
If you are an LLC, it is best to maintain separate accounts for your business and personal expenses. This will allow you to better mitigate errors when determining personal deductible
calculating corporation tax. It will also help limit legal exposure to debts. Make sure you use a business credit card to keep tabs on all your transactions. Also, make note of any business expenses you fund using your personal money.
4. Update your books regularly
You need to present sufficient proof of transactions while filing taxes. This includes receipts of invoices and receivables or any expense you enter in your company’s account books. It may sound irksome to keep track of the paperwork, but if there are any discrepancies found, your transactions could be declared invalid. Therefore, pencil it into your schedule and vigilantly update your books to reduce the probability of error and confusion during the tax-filing season..
If you send out payment requests, follow up on them and ensure you are paid on time to avoid unnecessary overtime.
5. Replace paper records with cloud storage
In general, you need to keep a record of a minimum of 6 years worth of tax documents. And if you haven’t ditched the traditional pen-paper tax-filing model, you are looking at a significant amount of storage space, the need for which will build over time. Not to mention, physical space is seldom secure or even accessible.
A better and more efficient option is to store your tax documents, expense reports, and other financial records on the cloud. Not only will your data be safe from physical deterioration but since you have the option of encrypting online data, security risks will significantly reduce. What’s more, you can access your finances from any time, anywhere, using any device.
If you need to parse through stacks of paperwork every time you want to access your business transactions, you are setting yourself up for errors, and loss of time and money down the line. So, ensure you are on top of your business accounts with these accounting tips using the best accounting software UK has to offer.